China - United States: Galium and germanium, a scratch, no more
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China's Gallium and Germanium export controls: a new front in the chip war
To welcome the visit of U.S. Treasury Secretary Janet Yellen, Beijing announced on July 3, 2023 that it would make sales of gallium and germanium conditional on obtaining an import license. The pretext put forward was to safeguard its own security, while the real objective was to provide a bargaining chip to lift sanctions against China in the electronics sector. But the atmosphere was not one of conciliation. China got nothing, and neither did Janet Yellen, who was hoping that Beijing would resume its purchases of Treasury bonds to help the United States fight inflation. There's a paradox here. The two countries are inextricably linked by their trade, which amounts to almost $700 billion a year, but at official level, as soon as a difficulty arises, Beijing and Washington are at pains to understand each other and find compromises. Fortunately, the semiconductor industry is there to call the administrations to their senses. China absorbs more than a third of the US semiconductor industry's foreign sales, a market that cannot be sacrificed. So we shouldn't be too alarmed about these two strategic metals. There's only a puff of heat about them. So don't lose hope: before long, the chip war should be over.
Three days before the visit of Treasury Secretary Janet Yellen, China announced on July 3, 2023 that, in order to safeguard its security and national interests, it was placing export controls on gallium and germanium and their derivatives, essential goods for the production of semiconductors and numerous electronic components. This decision comes at a time when the USA and some of its allies are steadily stepping up repressive measures against China's technological development in various fields, including semiconductors1 .
Beijing is ready to attack
To welcome Treasury Secretary Janet Yellen's visit, the Chinese government issued a directive on July 3, 2023, requiring authorization for exports from China of gallium and germanium and their derivatives from August 2023. The export application must specify the end-user and end-use, and the response is submitted to the State Council for approval. Officially, this measure was taken2 to "safeguard the national security" of the country2 .
Security, but not only. According to the unofficial Global Times, this decision comes at a time when the United States and some of its allies are stepping up their measures to oppose China's technological development, particularly around semiconductors. The West's "chip war" is intensifying. ASML, the Dutch microelectronics equipment giant, now requires an export license for the shipment of its DUV immersion lithography systems. In return, it was only natural that China should safeguard its interests through "proactive" measures.
What about the American side?
The Treasury Secretary's trip is a further demonstration of the importance President Joe Biden attaches to the world's two largest economies managing their relations responsibly, and deepening their exchanges on finance and the global macroeconomy. More concretely, the second objective of this trip - the main one according to Beijing - is to persuade China to stop reducing its holdings of US Treasury bills, and on the contrary, to strengthen its positions in order to help the United States solve its inflation problems.
How can we expect China to come to the rescue of the US Treasury when it is seeking to promote the yuan internationally at the expense of the dollar? Over six months, Beijing has shed 10% of its Treasury bonds, and Japan is now the largest creditor ahead of China3 . All that Janet Yellen could announce after ten hours of talks was that both sides would seek to communicate more frequently at the highest level, and that the US and China were on a more stable footing despite their "significant disagreements"4 .
China is no wiser
It doesn't care that it is responsible for a third of the US trade deficit. And therefore doesn't care about Janet Yellen's reminder of the three principles that frame economic relations between the USA and the PRC:
- guarantee our national security interests, as well as those of our allies, and protect human rights,
- build healthy economic relationships that foster mutually beneficial growth and innovation, and expand economic opportunities for American workers and businesses,
- cooperate on pressing global challenges such as climate change and over-indebtedness.
So much so that, without offering anything in return, it insists on discussions on revising the tariffs imposed by the Trump administration and the sanctions affecting 1,000 Chinese companies.
She'll have to wait and see. Because Janet Yellen reminded them in no uncertain terms that these issues were not the responsibility of the Treasury, but of Commerce Secretary Gina Raimondo.
The break is not yet complete
On June 18, Commerce Secretary Gina Raimondo, National Economic Council Director Lael Brainard and National Security Advisor Jake Sullivan met, at their request, with the heads of the three main US semiconductor groups: Intel, Qualcommet and Nvidia, to examine the threats that new provisions could pose to sales to China5 . The participation in this meeting of the administration's most senior officials highlights the pressure to which the presidency is subject, observes Bloomberg.
In fact, China is the leading market for the American semiconductor industry, with sales expected to reach 180 billion by 2022, or more than a third of the world total. So the chip industry can't afford to forego its profits in China.
What is there to take away from this visit, and from what follows, which may come as a surprise? One observation to keep in mind: while they exchange 690 billion worth of various goods over the course of the year, at official level Beijing and Washington are struggling to understand each other and find compromises.
So we shouldn't be moved by China's temper tantrum. Instead, we should hope that the chip war ends without dragging on. The economic exchanges between the two powers are such that when they scratch each other, the incident is likely to be more or less quickly forgotten.
Sources:
- China to impose export controls on key materials for chipmaking as West's 'chip war' escalates, Global Times, 03/07/2023.
- Announcement No. 23 of 2023 from the Ministry of Commerce and the General Administration of Customs on the implementation of export controls on gallium- and germanium-related articles.
- See the article Quelques yuans pour les Amériques in this issue.
- Janet Yellen's Trip to China: No Breakthroughs But 10 Hours of Talks - The New York Times.
- Chip companies, top US officials discuss China policy, Reuters, 18/07/2023.
Box 1
Gallium and germanium, two precious metals
Germanium and gallium are two neighboring semiconductors on the Mendeleev table, with atomic weights of 31 and 32. Both are rare metals, present as impurities in common metal ores, so their extraction is costly and environmentally damaging. This is why Western countries have left it to China to extract and develop these two metals, which are more precious than gold (80% of gallium and germanium production).
Two semiconductors you can't do without
- Gallium arsenide and gallium nitride are used in power electronics (essential for electric cars), and in high-frequency circuits for 5G. They are also required for optronics applications, and for the manufacture of certain lasers and low-energy light bulbs (LEDs).
- Germanium dioxide is a valuable component of optical fiber cores, where it replaces titanium dioxide as a silica dopant, eliminating the need for subsequent heat treatments that weaken fibers. Infrared-transparent, it is easily cut and polished to produce lenses and windows. It is particularly used as front optics in thermal cameras.
They are antagonistic metals. Gallium was discovered in 1875, and named after France. So much so that the neighboring metal, discovered in 1886 by a German chemist, could only be called germanium.
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